Op-Ed: Ripple's deal with MoneyGram weakens South Korean ban effects

While talk of South Korea banning cryptocurrency trading has caused the price of top coins such as bitcoin to decline considerably this week, the price of Ripple (XRP) was back over two dollars at least temporarily.

The decision to drop the MoneyGram buyout deals a blow to Alibaba chief Jack Ma's hopes of moving into the US financial market

JUAN MABROMATA, AFP

The performance of Ripple is due to an announced deal with MoneyGram based in Dallas, Texas. MoneyGram shares rose more than six percent following the news.

MoneyGram

MoneyGram is the second largest provider of money transfers in the world. The company operates in more than 200 countries with a global network of about 347,000 agent offices. It has a somewhat checkered history. However, it has been a thriving business of late.

MoneyGram will allow customers to send and complete cross-border payments using the token of Ripple XRP instead of fiat currencies such as the dollar. This system will allow real-time foreign exchange settlement through the coin "which gives financial institutions the ability to unlock liquidity and access multiple corridors with one pre-funded originating account".

Jack Ma, chairman of the Chinese giant Alibaba Group Holding and CEO of Ant Financial, was banned from acquiring Texas-based MoneyGram International this month and he gave up trying to buy it.

Ripple's performance

Back on December 1st last year, Ripple was trading at a little under 25 cents but by the beginning of this year it was at $2.21. It reached a high of $3.34 in January . While today it was over two dollars later in the day it dropped and is now trading at $1.92. It would seem that Ripple has not entirely escaped the negative effect of the South Korean announcement that it could ban trading in cryptocurrencies. However, just during the time I have written this, it is now above two dollars once again

South Korea has a high demand for cryptocurrencies so much so that prices of many coins are up to 30 percent higher on South Korean exchanges than those in other countries. The prices are so out of line that Coinbase decided to drop South Korean prices in determining an average price for coins.

From a relatively unimportant and unnoticed coin a few months ago, Ripple has become the third largest coin by market cap after bitcoin and ethereum's ether. Its market cap is now 76,768,530,617 as of Thursday evening. At one time it had surpassed ethereum. Two major venture capital firms Google Ventures and Standard Chartered bank have invested in Ripple.

While governments have been wary of cryptocoins, some of them are proving useful to established institutions creating a situation where governments may have conflicted attitudes about cryptocoins.

The Chinese government has banned initial coin offerings (ICOs) and shut down exchanges at least temporarily and is now cracking down on mining, but at the same time it recently awarded the TRON cryptocurrency developer an award for its technology and it has partnered with the top Chinese audio supplier Peiwo App.

The South Korean government clamp down on cryptocurrency trading and Ripple

Justice Minister Park Sang-ki said the decision to curb trading in cryptocoins is multi-departmental. The decision included members of the Finance Ministry as well as securities regulators. Sang-ki said to Reuters: “There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges.”

Ripple had already announced last March a pilot program had been signed between two South Korean banks and a consortium of 61 Japanese banks. Ripple has deals with other banks as well. It is not clear how South Korean regulations might impact the Ripple project in South Korea.

Naeem Aslam, chief market strategist for London-based ThinkMarkets said: "Banning cryptocurrencies altogether would be difficult given that the country is one of the biggest markets in the world, especially for bitcoin and ethereum. Keep in mind that this is not the first time that the regulators have gone after the cryptocurrency market. During this week alone, we have seen two headlines emerging from South Korea aimed at bitcoin. There is no doubt that the demand for bitcoin in South Korea is massive and some elements of the public's behavior — when it comes to trading the cryptocurrencies — aren’t far from gambling habits."

Aslam said that traders should note that once the bill about cryptocurrency exchanges is drafted it will require the backing of 297 members of the National Assembly. The process he claimed could take months or even years.

Abhishek Pitti founder of Nucleus Vision a visual data company that uses blockchain technology, thinks that Ripple (XRP) will escape any South Korean ban. He notes that Ripple now has multiple institutional customers who are seriously considering using Ripple for cross border settlements. Pitti said: "I don't think South Korea is banning cryptocurrencies altogether. They are clamping down on unregulated exchanges so that shouldn't effect ripple because their primary users are regulated financial institutions.

More regulation but no bans?

No doubt governments will continue to crack down on cryptocurrencies, including unregulated exchanges, mining, and initial coin offerings. However, as interest in the coins grows and the coins have multi-billion dollar caps there would be a huge backlash against banning exchanges.

However, a new factor in the situation is the emergence of applications of the blockchain technology and cryptocurrency applied to existing financial institutions. Soon we may see some members of the financial establishment objecting to any outright ban on the exchange and use of cryptocurrencies.